UBS Group AG (UBS) 2016 Q1 法說會逐字稿

Ladies and gentlemen, good morning.

Welcome to the UBS first quarter results 2016 conference call.

(Operator Instructions).

The conference is being recorded.

(Operator Instructions).

The conference must not be recorded for publication or broadcast.

At this time, it's my pleasure to hand over to UBS.

Please go ahead.

Good morning, everyone.

It's Caroline Stewart here, Head of Investor Relations.

Welcome to our first quarter results presentation.

This morning, Sergio will provide you with an overview of results, and Kirt will take you through the details.

After that, we'll be very happy to take your questions.

Before I hand over to Sergio, I'd like to remind you that today's call may include forward-looking statements.

These statements represent the Firm's belief regarding future events that by their very nature are uncertain and outside of the Firm's control, and our actual results and financial condition may vary materially from this belief.

Please see the cautionary statement included in today's presentation, and the discussion of risk factors in our Annual Report 2015 for a description of some of the factors that may affect our future results and financial condition.

Thank you.

And with that, I'd like to hand over to Sergio.

Thank you, Caroline, and good morning, everyone.

A lot has been written and said about the challenges faced by the industry in the first quarter.

Many of the risks that we have been pointing out for the past few quarters materialized in the first three months of the year, leading to even more pronounced client risk aversion, and abnormally low transaction volumes.

For UBS, this was true particularly when compared to the exceptional Q1 we had last year following a high level of transactional activity triggered by the removal of the euro currency floor by the SNB, as well as our strong performance in APAC.

Nevertheless, our discipline and focus allowed us to deliver a resilient adjusted profit before tax of CHF1.5 billion with positive contributions from all business divisions and regions.

Net profit attributable to shareholders was CHF707 million, and our adjusted return on tangible equities was 8.5%.

The Bank maintained its strong capital position with a fully applied Basel III CET capital ratio of 14%, and a Swiss SRB leverage ratio of 5.4%.

Turning to the business divisions; despite the lowest level of transaction volumes recorded for a first quarter, wealth management's pretax profit was resilient and the business continued to make good progress on its strategic initiatives.

Even with moderate client deleveraging, wealth management attracted very strong net new money without compromising quality or sustainable profit growth.

Net inflows were particularly strong from clients in Asia Pacific and the ultra high net worth segment.

Wealth management Americas delivered a solid pretax profit significantly higher than the prior quarter, as expenses for litigation declined and an increased net interest and recurring fees income more than offset a decline in transaction revenues, which was the lowest for a first quarter since 2009.

Net new money was strong and reflected net inflows predominantly from newly-recruited advisors, as well as from advisors employed with UBS for more than one year.

Our financial advisors continue to be the most productive among peers with an average of $147 million of invested assets per advisor.

We delivered net new money from our combined wealth management businesses of CHF29.1 billion, the best since the first quarter of 2008.

While there is a volatility in net new money from quarter to quarter, the one constant is our focus on quality rather than quantity.

As we look to the full year, we continue to expect net new money growth to be within our target ranges.

Personal and corporate banking deserves applause for posting excellent pretax profit, especially given continued challenges from negative interest rates.

Net new business volume growth from retail clients was 4.9% and, while the first quarter is typically the strongest for new business, this is the highest growth rate we have seen since the first quarter of 2012.

Furthermore, we continue to manage credit risk prudently with minimal credit losses this quarter.

Results in asset management declined and were affected by the very challenging conditions for [active] managers in the quarter which particularly impacted performance fees.

Net new money outflows, excluding money markets, were CHF5.9 billion including CHF7.2 billion of pricing-related outflows from one client, and CHF3.8 billion of outflows driven by client liquidity needs, both from lower margin passive products.

As I said a few weeks ago, in the environment observed during the quarter we would consider our investment bank's performance to be satisfactory, if it covered its cost of equity, which it comfortably did with a 19% adjusted return on attributed equity.

The first quarter of last year included a very strong performance, reflecting very high client activity levels that particularly favored our business footprint.

In Q1, the investment bank continued to demonstrate prudent risk and resource control, in line with very low levels of client activity.

On costs, we made further progress in the quarter, with an additional CHF100 million in reductions.

As we progressed on detailing our cost reduction plans, we have defined significant front-to-back initiatives that we will now implement to achieve our net CHF2.1 billion savings target, despite increased ongoing regulatory costs.

There is no magic bullet that can fully offset material revenues headwinds without compromising sustainable profitability or, in fact, the future of our franchise.

Therefore, we will continue to carefully balance our investments in structural growth with tactical adjustments to our cost base to mitigate the cyclical headwinds we are facing.

We, and the industry, continue to face challenges and, while UBS is in a position of strength, we will not be complacent.

We continue to execute on our strategy with discipline, and transition to the new regulatory capital requirements at an optimal pace.

Most importantly, staying close to our clients and delivering on our commitments to shareholders remains paramount, particularly with respect to our capital returns policy.

We remain committed to our policy of returning at least 50% of net profits to shareholders.

Although it's early in the year, our aim is to continue to grow our ordinary dividend, while building the capital needed to address regulatory requirements and to support our growth.

Thank you.

Kirt will now take you through the details for the quarter.

Thank you, Sergio.

Good morning, everyone.

My commentary will reference adjusted results unless otherwise stated.

This quarter, our results have been adjusted for restructuring charges of CHF265 million and net foreign currency translation losses of CHF123 million.

As previously noted, we've adopted the own credit presentation requirements of IFRS 9, with own credit recognized in OCI and no longer affecting our income statement.

Wealth management delivered a resilient performance with profit before tax up 26% to CHF636 million.

Transaction revenues were the lowest they've been in any first quarter on record.

However, revenues increased as activity picked up from the extremely low levels in the prior quarter, which also included the CHF45 million client shift fee paid from P&C to WM.

Recurring net fee income decreased, as the benefits of pricing measures and higher mandate penetration were more than offset by lower invested assets in cross-border outflows.

Net interest income declined as higher deposit revenues were more than offset by lower allocations from Group ALM, and lower lending revenues, as loan balances decreased on currency effects and client deleveraging.

The cost-to-income ratio was 66%.

Operating expenses decreased 10% to CHF1.2 billion, largely due to lower net expenses for litigation, regulatory and similar matters.

Net new money was CHF15.5 billion, the highest since 2007, with an annualized growth rate of 6.5%.

Strong net new money in the quarter was delivered despite client deleveraging, which continued, but slowed from the high levels we saw in the second half of 2015.

Invested assets decreased to CHF925 billion, as currency effects and market declines more than offset strong net new money.

Mandate penetration increased by 60 basis points to 27%, with CHF6.9 billion of net new mandates.

Net new money was positive in all regions and particularly strong in APAC with CHF8.8 billion, the second highest since 2007.

Net new money was also strong in the ultra high net worth segment, at CHF13.3 billion, an annualized growth rate of 10.5%, the highest since the first quarter of 2013.

Wealth management Americas delivered another solid quarter, with profit before tax of $245 million.

Operating income rose 1% to $1.9 billion on record net interest income which benefited from higher interest rates.

Recurring net fee income also increased, with transaction-based revenue decreased on lower client activity.

Operating expenses decreased to $1.7 billion, mainly due to $215 million lower net expenses for litigation, regulatory and similar matters.

Excluding these costs, expenses increased, mainly due to higher allocated costs from corporate center, as the prior quarter included a cost agreement credit of $36 million.

Personnel expenses also increased, partly due to higher initial costs related to our new healthcare plan.

Net new money was $13.6 billion, predominantly from newly recruited advisors, but also with solid net new money from advisors who have been with the Firm for more than one year.

For the second quarter, we expect to see typical trends of increased client withdrawals, associated with seasonal income tax payments.

In the previous three years, second quarter outflows from tax payments have been in the range of $2 billion to $4 billion.

Invested assets increased by 2% to $1.1 trillion.

Managed account assets were up 3% to a record $361 billion or 34% of invested assets.

FA productivity remained industry leading, as both revenue and invested assets per FA increased.

Lending balances were flat, as growth in mortgage balances was offset by lower securities-backed lending.

Personal and corporate banking delivered another solid performance, despite persistent negative interest rates and the challenges facing the Swiss economy, with profit before tax increasing 7% to CHF422 million.

Operating income increased 5%, mostly on higher transaction-based income, as the prior quarter included the CHF45 million client shift fee paid to wealth management.

Net interest income decreased as higher loan and deposit revenues were more than offset by lower allocations from Group ALM.

Despite this, net interest margins remained healthy at 166 basis points.

Net credit loss expenses were negligible as costs for newly impaired positions were offset by recoveries.

As mentioned in the previous quarters, given the reliance of the Swiss economy on exports, the continuing strength of the franc may impact some of the counterparties within our domestic lending portfolio and lead to an increase in the level of credit loss expenses in the future periods.

Operating expenses increased by 4% on higher allocated costs from corporate center services as the prior quarter included a cost agreement credit of CHF49 million to P&C.

The cost-to-income ratio was stable at 56% for the fourth consecutive quarter.

Annualized net business volume growth for our personal banking business was seasonally higher at 4.9%.

We continued to attract new clients with the highest first quarter net new domestic clients on record, mainly driven by younger clients, a testament to our strong e and mobile banking offering.

Asset management delivered a profit before tax of CHF110 million in a challenging environment for active management, which impacted performance fees, particularly in equities, multi asset and O'Connor.

Net management fees decreased, primarily reflecting the sale of alternative fund services in the prior quarter.

Net new money, excluding money markets, was negative CHF5.9 billion and included a CHF7.2 billion pricing-related outflow from one client and CHF3.8 billion of outflows driven by client liquidity needs, both from lower margin passive products.

Against the backdrop of very challenging market conditions and muted client activity, most pronounced in Europe and APAC, the investment bank generated CHF370 million of profit before tax.

Together with low continued consumption of financial resources, this resulted in a return on attributed equity above our target of greater than 15%.

Corporate client solutions revenues were CHF474 million, down 39% year over year, as the global fee pool declined substantially, with the largest decrease in ECM but also in advisory, while DCM were broadly unchanged.

Financing solutions decreased on subdued client activity and margin compression.

Risk management revenues decreased, due to higher hedging costs, and as the prior year included a gain on a portfolio macro hedge.

In investor client services, equities revenues were 20% lower against a strong first quarter as weak client activity and challenging trading conditions impacted revenues, particularly in derivatives.

The Americas equities business had a very strong quarter with positive trends in all products.

Looking at FX rates and credit, we are pleased with the progress we are making, particularly given market conditions.

Apart from first quarter 2015, where we saw exceptional activity and revenues related to the SNB floor removal, first quarter 2016 is our best FRC quarter in the last 12 as our client-centric low inventory model worked well in volatile markets.

We recorded a net loss recovery of CHF2 million as recoveries more than offset expenses from new provisions.

In respect to our oil and gas exposure, at the end of March our total funded and unfunded net banking product exposure decreased by CHF600 million to CHF5.5 billion.

This was driven by reductions in the exploration and production as well as the services and supply subsectors.

We recognized a credit loss expense of CHF17 million against these exposures, including the effect of establishing a collective provision, taking the total provisions to CHF56 million.

DIB exhibited strong expense and resource discipline.

Operating expenses, excluding services to/from, were down 26% year over year, and personnel expenses were down 29%, mainly reflecting lower expenses for variable compensation.

LRD was CHF32 billion lower year over year and down CHF6 billion from low yearend 2015 levels.

VaR was at its lowest level since 2013 and RWA was stable.

Corporate center services recorded a loss before tax of CHF211 million, compared with the loss of CHF326 million in the prior quarter, largely as the prior quarter included retained costs, reflecting differences between actual annual costs incurred and allocations to the businesses.

We have refined our Group asset and liability management disclosure in order to provide greater transparency.

Income from Group ALM's activities is disclosed for the three main risk management areas: business division [line] risk management; capital investment and issuance; and Group structural risk management.

A description of these activities is provided on page 46 of our quarterly report.

Total risk management net income after allocations retained within Group ALM can vary significantly quarter to quarter.

This volatility is driven by factors such as movements in basis spreads and interest rates, the general market environment which impacts the consumption of liquidity and funding by business divisions, and the volume of buffers that we are required to hold, combined with the returns we earn by managing these low-yielding assets.

While the retained balance for the first quarter was negative CHF17 million, in current market conditions we expect it to average around negative [CHF50 million] per quarter in the short term, although there will be swings around this figure.

We have organized a call for analysts and investors with Claude Moser, the head of Group asset liability management, where he will discuss Group ALM's activities and objectives and also answer questions on our new disclosures.

We will provide details shortly.

Group ALM operating income decreased to negative CHF27 million with a profit before tax of negative CHF25 million, as improved risk management net income after allocations was offset by the effects of accounting asymmetries related to the economic hedges as well as hedge accounting ineffectiveness.

Profit before tax in non-core and legacy portfolio was negative CHF181 million, up from negative CHF312 million in the prior quarter as expenses decreased largely due to lower net expenses for provisions for litigation, regulatory and similar matters, and as the prior quarter included a charge of CHF50 million for the annual UK bank levy.

There were also lower losses from novation and unwind activity as we take a more passive approach to reducing the remaining exposures.

Non-core and legacy LRD decreased by 11% to CHF41 billion, mainly due to lower OTC derivative exposures.

And, as previously highlighted, we expect a slower pace of reduction in LRD relative to prior experience, with the transition from active management to natural asset decay.

Of course, we will actively reduce exposures when doing so is accretive to shareholders.

If we look back, we have delivered over CHF2 billion of net corporate center cost savings since 2011.

This includes saves to offset the more than CHF0.5 billion of incremental annual ongoing regulatory costs.

For the quarter, we achieved an additional annualized net cost reduction of more than CHF100 million in the corporate center, bringing the total savings to CHF1.2 billion, compared with the 2013 exit rate, and we are on track to deliver CHF1.4 billion by the second quarter.

Savings were largely driven by lower personnel expenses across corporate center services in non-core and legacy portfolio.

Occupancy costs decreased, largely as a result of our ongoing efforts to improve real estate efficiency.

We are fully committed to delivering CHF2.1 billion net cost reduction target by the end of 2017.

As we've continued to make progress in our cost efforts, we've identified other opportunities to generate savings of a front-to-back nature.

This has given us increased confidence in our ability to deliver the full CHF2.1 billion, despite increased ongoing regulatory costs.

For example, as part of our investment bank simplification program, reducing the number of booking models in our swap business and reducing our legal entities will enable streamlining in the finance, operations and risk functions that support them.

We are also continuing to evolve wealth management towards a more globally integrated model.

This includes simplifying and streamlining middle office support functions, including a global distribution and advisory approach which will increase our agility and ability to serve clients.

We will continue to focus on capturing synergies across wealth management, and wealth management Americas, specifically improving collaboration around our platforms.

This will not only create savings as we capture additional benefits from scale, but also improve our client offering as we ensure that the best products and services available from across the globe are accessible to clients.

Another opportunity is the review of our risk management and compliance activities and processes where we identified opportunities to eliminate overlaps, streamline controls, centralize support activities and enhance accountability.

This will both improve our control environment and deliver efficiencies, and it will help improve client-facing staff productivity.

Apart from our structured costs, we will continue to look for more tactical actions to mitigate cyclical headwinds.

Our capital position remains strong with a fully applied Basel III CET1 capital allocation ratio of 14%, and a fully applied Swiss SRB leverage of 5.4%.

CET1 capital decreased as profits were more than offset by negative currency translation effects and dividend accruals.

Details on CET1 movements can be found on page 83 in our quarterly report.

RWA increased by CHF6 billion, driven by regulatory add-ons, book size, the net effects of a revised operational risk model, partly offset by currency effects.

LRD increased by CHF8 billion, due to higher on-balance sheet exposures in Group ALM related to our HQLA portfolio as well as an increase in securities financing transaction exposures.

These were partly offset by currency effects.

We continue to build our capital position to address the revised Swiss Too-Big-to-Fail ordinance.

In March, we issued CHF1.4 billion of high trigger AT1 capital, the first such transaction in 2016, attracting very strong demand.

We also issued CHF1.3 billion of TLAC during the quarter and issued $5 billion in early April, which will contribute to our total loss absorbing capacity under the new proposed capital requirements.

Thank you.

And with that, Sergio and I will now open it up for questions.

(Operator Instructions).

Huw Van Steenis, Morgan Stanley.

Two questions, really both on cost.

So if the revenue environment doesn't improve, how have you gained through what additional work you could do on cost?

You mentioned about tactical measures, but how would you more profoundly improve the operational leverage?

And then secondly, you mentioned, Kirt, obviously, you're moving to a more passive stance in terms of runoff of the non-core portfolio.

Have you investigated whether there are benefits to take out more costs more quickly through a more accelerated trend, and how do you think about those tradeoffs?

Thank you very much.

Thank you, Huw.

As I mentioned in my remarks, I think trying to offset the speed of the contraction of the top line, it's, I would say, that on a short-term basis is impossible.

I think that the CHF2.1 billion initiatives that we are working on are going to help, over time, if these conditions persist, to manage that environment.

But I would say that we cannot consider these kind of conditions we saw in the first quarter as permanent, as a new normal.

If that would be the case, of course we would do our best to get to an environment in which we can keep the value of the franchise and the optionality for better days intact.

I think that taking draconian actions to show cost contraction for a few quarters, and that would impair our ability to be there when the situation normalizes, would be a major mistake.

So we are very focused to do that, but there is no magic bullet to take down billions of cost in the short term.

I do think that, as time goes by, if this is the condition we're going to face in the industry, the industry itself will be forced to rethink many of the processes that we are doing on a stand-alone basis, on a more collective basis, then try to combine and create economy of scales for the industry in a consolidated way.

But it's not something that I do see happening in the next 12 to 24 months and that's the situation.

So I think that we have to keep our competitive position intact and, as I've mentioned before, be very careful about not throwing out the baby with the bathwater as we do that.

In terms of non-core and legacy, I think Kirt highlighted that, when we look at the time decay of this portfolio, we constantly look also at ways to, if the opportunity presents, unwind faster if the economic profit generated by not only the fact that capital would be released, but also the cost associated with supporting the activity would disappear.

So when he said that we're going to do it in a shareholder-friendly way, we are including both cost of capital and costs that would disappear.

And, of course, as we are working right now in taking down corporate center costs, the first beneficiary of that movement is, indeed, non-core and legacy, because this is, in the next few years, clearly a business that is not going to be there.

And therefore, our first priority is to really shrink and take it down to as close as we can to zero.

Huw, let me just add to the non-core and legacy question.

If you look at the cost structure, the majority of the costs are legal.

They include such items like last quarter the UK bank levy and they also include, of course, allocations from some of the supporting functional costs.

As Sergio mentioned, we continue to take those allocations down.

The opportunity to reduce direct costs is minimal at present and we'll continue to work that down as we see the non-core and legacy portfolio reduce, over time.

Now, we have looked at other options, like trying to outsource the non-core and legacy portfolio, but we actually found that the economics really don't work.

Thank you very much indeed.

Kinner Lakhani, Deutsche Bank.

I just have a few questions.

Firstly, just on the recurring fee and commission margin within wealth management, which saw some pressure, you seem to indicate it's a continuation of the cross-border outflow story.

I guess my question is, what is the outlook from here?

Are we at the end of such headwinds, given that most of the regularization in Europe has happened, or should we expect regularization elsewhere in the world?

The second question was on the retained funding cost.

Thanks for the new disclosure on slide 20.

I just want to try and understand this a bit better.

The buyback that you executed at the end of last year, I think you'd suggested some funding cost savings of [CHF170 million] per annum starting in 2016.

Where should we see that coming through and how does that help that line?

And then thirdly, just on the BCBS changes where, obviously, Basel is suggesting a kicking out of the AMA model within operational risk, could you give us some guidance as to what that does for your operational RWAs?

And the final question, which I asked a quarter ago, is your ROTE target for this year, which is stable in 2016 on 2015, given that the Q1 ROTE is 8.5%, the outlook remains relatively cautious.

Are you still comfortable with this target?

Last year I think we had close to 14% ROTE.

Thank you.

Let me take your first three questions actually.

In terms of our recurring fee margin, actually, if you look at our recurring fee margin overall for wealth management, it was 39 basis points, which it's been hovering around 41 and 40, and so it's slightly below where it was in the last couple quarters.

And what we've been doing is that we've been implementing pricing actions to try to offset the impact of some of the outflows due to the regularization process, and we continue to do this.

And also, of course, we've been addressing other fee and revenue opportunities.

And where we are in terms of that process, as we've highlighted previously, is it's largely complete in Europe and we will see some remaining residual outflows as we go through the next couple of quarters.

We highlighted in the fourth quarter that Italy was really the last major market to go through its amnesty.

Now, also we highlighted last quarter, however, we do expect to see some outflows going forward for countries outside of Europe in anticipation of the automated exchange of information.

And, of course, we're early adopters, it will be effective in 2017, and that process is ongoing.

Also, we would expect to see outflows as other markets pursue their own amnesty programs, as we've already seen in Israel and we've seen in South Africa.

And, of course, it's well publicized that Brazil and Russia are exploring such programs.

And we do expect that that will impact our business during the course of this year and into next year.

The margin impact you're seeing in wealth management, just to finally comment on that question, is really from transaction.

Our transaction margin which, at 17 basis points, as I highlighted in the first quarter, the lowest that we've seen.

Normally, in a typical first quarter our transaction margin will run around 24, 25 basis points, so it's substantially below typical levels.

In terms of your retained funding costs, what we announced with the buyback in the fourth quarter is that we would expect to see about CHF187 million of benefit that would begin to flow through this year.

Now, we're already seeing that in the first quarter and we expect that that should continue to pick up as we go through the next couple of quarters.

And that really is embedded in the overall net income from risk management activities after allocations that I highlighted.

So that's already reflected in the CHF17 million negative net income that we saw in the first quarter.

It's also already reflected in the negative [CHF15 million] that we guided on a go-forward basis, although with some degree of volatility.

For your third question on BCBS changes, just first of all, just to remind you that at present, under the expected TBTF 2 ordinance, LRD will be our binding constraint.

And we will need to see about 50% increase in an RWA for RWA to become our binding constraint.

Now clearly, BCBS has come out with standard guidance across operating risk, market risk and credit risk.

And clearly, of course, we have assessed the current guidance and also are participating in ongoing [TOISs].

We would highlight that there still is quite a bit of clarification that needs to be provided.

For example, in terms of ultimate floors and where we end up, or in terms of the interplay between internal models and standard across our different businesses and, obviously, in terms of what ultimately gets adopted by FINMA and implemented in Switzerland.

So therefore, it wouldn't make sense for us to provide any guidance consistent with our past.

However, I would highlight, and we've indicated this in our earnings report, that if the current rules were to be implemented we would clearly see a very significant increase in our RWA.

Sergio, I'm not sure if you want to comment on ROTE?

On ROTE, I think it's clearly still too early to update our expectation on return on tangible equity and we will probably be in a better position at the end of this quarter to do that.

Of course, the macro assumptions underlying our business plan, in particular in respect of the yield curve in US dollars, has shifted dramatically.

If you look at the overall assumptions on GDP growth in the globe and wealth creation have changed, so the situation from a beta stand point of view is clearly not the one that we have been planning over the years, and particularly towards the end of 2015.

But as we highlighted in our outlook statement, I think that we are well positioned to capture and benefit from even a moderate improvement of the situation.

If you go back into last year volatility on ROTE, I think that although the situation and the reasons were maybe different, but there is a high degree of volatility on this number.

So it's really too early to say that, but of course, current market conditions, as I mentioned before, cannot be seen as a new normal, and as a final outcome for the full year 2016.

Great.

Thanks, Sergio and Kirt.

Alevizos Alevizakos, HSBC.

My first question is basically on the return on equity of the investment bank.

You just mentioned, once again, that the LRD seems to be the binding constraint, and still you allocate the capital using this kind of allocation, using also capital and then leverage, etc.

You say that the ROE of the business is about 19%, even though it seems that, if you do it on an LRD basis, this is actually closer to 10%.

I still wonder why you are not doing it based on the higher equity that's needed, and you do it on an amalgamation.

The second question is, the mandate penetration went back to 27%, which is actually good.

I just want to confirm that the target remains at 40%.

And then what's the way that you can actually accelerate this, and therefore, what's going to be the impact on your P&L if you do it?

Is it going to be mostly on the cost-income ratio, or mostly on the revenue?

Thanks.

Thank you.

In terms of our equity attributions framework, we've been very, very consistent and transparent over the last several years on our framework, and we provide detail in our Annual Report and also updates in our quarterly earnings.

In addition to that, of course, we update the framework every year when we go through our planning process.

Our equity attribution framework reflects our strategy in our business model, and our business model is that Group treasury, in ALM specifically, manages liquidity on behalf of the business divisions.

And through our funds transfer pricing framework they allocate liquidity costs and funding costs back to the business.

We also maintain a flexible resource usage model so that we give flexibility to the businesses to flex and increase and reduce their resources.

You see that that benefited the IB, for example, during a quarter where they reduced and maintained very low levels of resource consumption when opportunities were not available in the market.

But also, we would highlight that we provide a full transparency so that you can actually make any assessments and make any adjustments based on alternative strategy and business models.

We're fully confident that, if you do that under really any alternative, all of our businesses would more than cover their cost of equity and actually would show quite resilient and strong performance.

In terms of the mandate penetration, the 40% target is still active, and it's one that the business is pursuing.

We've indicated that we expect that over the medium term.

As we continue to increase penetration of mandates, clearly that will provide a margin improvement overall to our invested assets.

And that should show up both in terms of revenue, but also in terms of cost-to-income as we really should not have very substantial incremental costs associated from migrating our clients from a self-directed product to a mandate, given that our mandate platform is fully automated and fully straight through.

Okay.

If I may add a final question on the LRD?

I can see that this quarter it increased for the two reasons that you've highlighted; basically, the increase in the secured financing transactions, and also the fact that you had to increase your liquidity portfolio ahead of the [IHC] finalization.

What I'm trying to understand is you've got this target of -- or actually aspiration of CHF950 billion of LRD, and I'm trying to understand the difference between the current figure and CHF950 billion.

Will it be mainly covered by regulatory requests, or will it be like just actually increasing the portfolio in the wealth management businesses, because obviously it makes a different on how we should think about the revenues going forward?

We should clarify very importantly that the CHF950 billion is not an aspiration.

What we've indicated is that that's an expectation that we have over the short to medium term.

Our model, and it's very consistent with what I outlined in terms of how treasury works, is a flexible model whereby, if there are opportunities in the market based on client activity that are fully justified from an economic return perspective to increase resource usage, then we would expect the businesses to increase the level of balance sheet that they're deploying for their businesses.

What you saw in a quarter where client activity was very, very, very low, there was low demand such as in the first quarter, and also in the fourth quarter of last year, that the level of LRD we deployed and the businesses used was very low, and actually reduced considerably during the fourth quarter, remained at relatively low levels during the first quarter.

We would expect that to continue.

If the environment improves we would expect that you would see an increase in LRD accordingly, that that would then show up in terms of our overall results, and we would manage towards that CHF950 billion overall expectation in the short to medium term.

Also, I'd just re-highlight that, as you saw in the first quarter, the increase was due to security financing transaction, and also, as you highlighted, HQLA requirement.

As well, and this is important because the liability side and the liability activity also generates LRD increase, it's also an increase in cash that we saw related to client risk preferences as well as the net new money activities that also resulted in an increase in our LRD.

Okay, excellent.

Thank you, Kirt.

Andrew Coombs, Citigroup.

Three questions, please, on capital, costs, and on net new money.

Firstly, on capital, when I look at page 83 at the move in your Core Tier 1 capital, [CHF581 million] of the move is attributed to other; can you just confirm what portion of that CHF581 million relates to the dividend accrual?

The reason I ask is, even if you assume all of it relates to the dividend accrual, it would appear that you are accruing a dividend broadly in line with last year's ordinary dividend, and that's despite your statement that you're aiming to grow the ordinary dividend.

That's the first question.

Second question would just be on the memo that's been sent to wealth management staff talking about a new wealth management structure from July 1. It talks about delayering, reductions in personnel, hundreds of millions of potential cost saves.

Just to clarify, are those cost saves associated with that new wealth management structure already embedded into your CHF2.1 billion cost reduction target by 2017?

The final question which would be on the net new money; very impressive during the first quarter, running well above your 3% to 5% target run rate in wealth management.

On the tape, it's been reported that you expect net new money to moderate for the remainder of the year.

Is that because you think there was some lumpy, one-off ultra high net worth inflows in the first quarter?

Does it relate to the aforementioned amnesties that you spoke about?

Would be grateful for a bit more color on the net new money direction.

Thank you.

Okay.

I maybe take the last two questions and then Kirt will take the first one.

Let me start with net new money.

I think that the volatility, as I mentioned before, we saw volatility on net new money in the last few quarters.

And, for sure, when you look at this quarter one positive effect was that we had less outflows due to cross border.

So that was a couple of negative headwinds that we saw in the previous quarters were not there.

Although we saw a moderate deleveraging during Q1 of around CHF2 billion, less than CHF2 billion, I think that was also a clearly positive development.

I think that, because we keep focusing on quality rather than quantity, we cannot extrapolate the first quarter results into the rest of the year, like we did it in the past.

We've never extrapolated a result that were below our range in the past; we're not going to extrapolate it now.

The only constant things we want to keep is the quality of these flows and there is nothing that I would consider extraordinary in terms of nature.

I think that you always have those dynamics affecting net new money.

But if you look at the pattern, it's still very much Asia, a consistent story, also in a seasonal manner and also ultra high net worth.

When you look at the US, the story is quite different because clearly, there we saw the impact of new hires having a strong effect, like we already saw in the fourth quarter.

But that's the reason why, if we want to keep quality, we need to keep our corridor of 3% to 5% and 2% to 4%, as we reported in the past.

In respect of the wealth management reorganization that you mentioned, what we are modifying is really the organizational structure, and particularly in respect to middle office, and the interaction between middle office, the back end to the front end.

So the impact on our front end will be extremely limited, and this is the reason why we described these kind of cost savings under corporate center, because the vast majority of those processes are usually done there.

And so, wealth management will benefit, over time, through a reduction of allocated cost to these businesses.

We are now basically going into execution of those plans, something that we have been planning for a few months and now is the right time, after having completed a huge transformation in wealth management over the last few years.

So the migration to a cross-border, a tax compliant environment that we saw in the last few years in Switzerland, the reorganization of our CIO activities, the reorganization of our IPS end product.

So all tiers were basically the pillars and the base for then now going and face the next phase.

We are rationalizing, like in the investment bank, legal entities, so all those measures are allowing us now to go the next level of execution of efficiencies.

And, as I mentioned before, it's very important for us to minimize and really be careful about not changing too much into the client-facing measure.

We don't want client advisor to be affected, other than having more productivity and better environment to operate and serve our clients.

Andrew, just to turn back to your first question, the other that you see reported on page 83 in our earnings presentation, as we footnote them, includes our dividend accrual.

However, we don't provide any additional disclosures on what else is in other.

But the aim is still to grow the ordinary dividend this year?

[I think] we stated very clearly our dividend policy.

We will continue to return more than 50% capital of net profit attributed to shareholders.

Our intent, certainly, is to be progressive and clearly, depending on the environment, we'll do everything possible to protect our baseline.

Thank you.

Kian Abouhossein, JPMorgan.

The first question is related to Asia and just the geographical mix of earnings.

If I look at current mix, roughly 20% of the profits are coming from Asia, compared to 30% in full year 2015 and it looks like the main delta is the IB.

And just wondering how you see the IB developing with an improving exit march into the second quarter.

And maybe you can also briefly discuss how that has impacted your wealth management business, just wondering if there has been some improvement in the environment relative to what we've seen through the first quarter.

The second question is on cost.

The CHF1.2 billion cost savings are very difficult for us to reconcile, considering that you have these ongoing regulatory expenses, but you also have regulatory program expenses, which more or less offset your CHF1.2 billion.

I'm wondering, how should we think about regulatory expenses offsetting [ongoingly] potentially your corporate center cost program.

And why don't we see corporate center staff declining?

If I look year on year you're actually roughly up 1% in the service area.

Could you please discuss those points?

Thanks.

I think, Kian, if you look at our performance in Asia, and I think as you note, there's a slight increase from the fourth quarter on the IB.

And that was clearly off of a very, very poor fourth quarter that we saw with some slight improvements, although still a very challenging Asia Pacific.

Sorry to interrupt you, but clearly, first quarter should be stronger than fourth, so I'm looking more full-year 2015 where you generate 30% of Group profits from Asia, compared to 20% in the first quarter [for US] and I'm just trying to understand.

And if I take IB divided by 4 full year, then it looks like your revenues are much, much weaker compared to last year.

Yes.

What we saw last year, Kian, is the first half of the year was extremely strong in Asia Pacific.

And it was extremely favorable in particular for our investment banking business in Asia Pacific where we saw exceptional derivative performance, exceptional structure derivative performance, which also aligned with the performance that we had in our wealth management business.

And we also saw a very good environment for our CCS business.

Now that tapered off slightly towards the second half of the year but really, the very strong performance in Asia was driven by the first half of the year.

Of course, the first quarter was more consistent with what we saw in the second half of the year in terms of Asia performance, which is why you saw that tapering off slightly.

It's a very consistent story for our wealth management business as well from a regional perspective.

And you don't see any improving trends, as we heard from some other players, that so March seems to have improved and also into April?

All I would say is that we still are very committed strategically to Asia Pacific.

We continue to invest.

We announced that we opened our Shanghai branch during the first quarter, and what you should expect from us is consistent investment, over time.

And while there has been some stabilization of markets, the markets have remained very, very volatile, and that still impacts client sentiment.

So we haven't seen a very substantial change in terms of how our clients are viewing the markets.

Maybe to turn to your questions about our expense programs; just to clarify, what we have communicated is that our net cost savings are net of our permanent regulatory expense.

We also report temporary regulatory expenses, and what we have communicated before is our temporary regulatory expenses from initiatives, very large initiatives related to addressing regulatory requirements, are expected to be around CHF700 million in 2016, which is roughly in line with what we saw in 2015.

What we've also highlighted in terms of our CHF2.1 billion target is that we expect to achieve that by, of course, our exit rate 2017 while absorbing the permanent portion of our regulatory expenses.

And we've also highlighted that the permanent portion of our regulatory expenses were around CHF500 million in 2015, and we expect at least an additional CHF200 million in permanent regulatory expense as we work our way through the next 1.5 years and as we absorb the ongoing permanent requirements of some of those initiatives that we are currently pursuing, and the CHF2.1 billion will be net of that CHF200 million increase.

And, sorry, regulatory program expenses, they should then decline to zero?

They should decline, but as we said, we expect that there's roughly at least CHF200 million that will be associated with ongoing permanent costs to be able to manage those programs once we bring the initiative itself to closure.

And that's the portion that we expect to offset.

And the 24,000 that you have in service people, why is it not declining, and when should we expect it to decline?

Our expense program is focused on overall costs and not on headcount.

We're not managing the program to target headcount number, because within overall headcount, of course, what will drive costs is the location of that headcount.

And we've been progressively moving our headcount out of high cost location into our service centers and into lower cost locations, and we expect that to continue.

In addition, of course, it's the real estate that's occupied by that headcount, and you saw that, actually, our real estate expenses came down in the first quarter.

Also, I think you'll see some timing differences in terms of when we hire incremental people.

For example, we hired people in the first quarter, actually mostly related to addressing the regulatory requirements, and when we continue to progress our structural initiatives.

Okay.

Thank you.

Fiona Swaffield, RBC.

I just had questions on two areas.

On the RWA side this quarter, you seem to have quite a big number for regulatory multipliers, and where are we relative to your CHF5 billion to CHF6 billion?

I think that was what you've been indicating you should see per annum; do you think you could be higher than that?

And then on leverage exposure, I understand you're not willing to give anything on RWAs, but there's been a relatively specific leverage on paper out as well.

Directionally, where do you think your leverage exposure could go under that new proposal?

Thanks very much.

In terms of RWA, as we indicated in our first quarter earnings disclosure last year, that we expect that the multipliers that have been imposed by FINMA for our mortgage portfolio, as well as for our investment banking portfolio, to progressively be implemented over the four years from last year first quarter, and to eventually have an impact of CHF27 billion increase in our RWA requirements.

And, as we highlighted, we saw some of those multipliers come into effect during the first quarter.

That was the biggest reason for the increase in RWA that we reported.

We'll continue to see those multipliers come into effect as we go through the rest of the year, and as we go through the next couple of years.

From an LRD perspective, we have assessed some of the recent changes in guidelines that have come out, and again, those are still preliminary and we do expect further clarification.

They have a mixed impact on our overall LRD requirements.

There are some that are positive and there are some that are negative, and we're still determining what the overall impact will be.

And also, of course, we're still waiting for the final guidance and how it's actually eventually implemented in Switzerland.

Thank you very much.

Andrew Stimpson, Bank of America.

A couple of questions from me.

Firstly on costs; cost flex in the IB actually look pretty impressive, I thought, with comps down by 29% year on year, so matching revenues there.

But how much extra flex is there in that number, because to me it must imply that there's almost no variable comp in that number for the quarter, which may be very correct and some people might like that, but it seems unlikely that'd be sustainable for the full year?

So if you could talk around any extra flex you have on costs there, or whether we're really down to fixed comp costs there now?

And then secondly, Kirt, you said you're doing some pricing actions you're taking on wealth management.

I'm just wondering how much room is there left for you to do that.

We've got a pretty long list of banks now who are really pushing growth in their wealth management divisions.

Are you seeing any effects from competitors on pricing or costs?

And I note there also on personnel costs, they're actually up 1% year on year and revenues are down 10% year on year.

I know you mentioned there's a new healthcare program, but that shouldn't account for too much, I wouldn't have thought.

So are you finding that costs are a bit less flexible in wealth management due to competition for talent and staff there, perhaps?

And then, lastly, on capital it took a bit of a hit this quarter, despite making a profit, so it looks like you've accrued all the profit for a dividend there, which I'm sure some people like.

But are there any plans there to add in a leverage requirement for your dividend policy?

You say that the LRD is going to be your capital constraint, but the risk-weighted asset metric is what you guys are using for your dividend policy.

So it seems that maybe, at one stage, those two might have to come together.

Thank you.

Yes, in terms of your first question, clearly if revenue were to go down further in the investment bank we would expect, and you should expect, to see a further reduction in compensation, so there is flex; we accrue on a variable basis.

Obviously, as well, as Sergio highlighted and I also re-highlighted, you should expect to see some responsible level of tactical actions that are IB, and all our businesses continue to take, as we go through the year, until we see some level of normalization of conditions.

Yes, so your assumption that there is zero flexibility is not correct.

In terms of pricing, we have been progressively implementing pricing actions across our wealth management businesses, and we think there's still some remaining opportunity.

However, the real opportunity, particularly in our wealth management international business, is around discounts.

And we think that just in general that's an area that has been under-focused on to date, and that's where we see some real upside over the next couple of years.

Now overall, if you look at the talent and the pressure on costs, clearly in some markets, particularly Asia Pacific, naturally we continue to see some pressure on costs.

But we actually don't see that the cost pressure, from an industry perspective, is anything that is more intense now than it was over the last couple of years.

We still feel very comfortable with the cost-to-income guidance that we provided for both our wealth management and our wealth management Americas business.

As you highlighted, in our WMA business there was some increase year on year in our personnel expense.

We did highlight that actually there was a reasonably stiff one-time expense related to the establishment or the migration to our new healthcare program.

In addition to that, naturally, you would see as we increased the level of our recruits, there are some initial up-front costs for onboarding, and that's natural.

And you also see some of that coming through, although as we digest, of course, those new recruits, their invested assets and their revenue come on board, you actually should see that start to favor our cost-to-income ratio overall.

Finally, you talked about our capital and what you saw, what we highlighted in terms of our CET1, is that, yes, there was dividend accrual.

But in addition to that, we actually had a fairly stiff foreign currency translation loss that we realized in the first quarter.

So it was the combination of both of those that offset our net profit attributable to shareholders.

Okay.

And any plans to add a leverage constraint on the [dividend]?

In terms of our leverage ratio, as we've highlighted several times, we will take the full period in order to achieve the Too-Big-To-Fail leverage requirements.

And what you saw during the first quarter is we made very, very good progress in AT1 and also on bail-inable bonds.

If you look at our total TLAC ratio, actually it improved quite substantially from 6.2% to 6.7%.

And we'll continue to make progress and take full advantage of the glide path that's available.

Cool.

Thank you very much.

Stefan Stalmann, Autonomous Research.

I have three questions, please.

The first one, going back to the new money flows in wealth management, I notice that you also had during the first quarter CHF9 billion of deposit inflows, which seems to be quite a high proportion relative to the CHF15.5 billion of net new money flows.

And also, you confirmed the attitude of quality over quantity but these deposit flows still look very, very large relative to the new money flows in the first quarter; was anything particular going on?

The second question regarding CET1.

I do have a bit of problems reconciling the movements in CET1 with the movements in shareholder equity.

For instance, in shareholder equity there's an CHF800 million negative foreign currency translation effect and in CET1 there's only about CHF300 million.

At the same time, there were treasury share purchases and share award effects affecting shareholder equity and I couldn't spot them in the CET1 reconciliation.

Could you maybe add a little bit more color on the moving parts here?

And the final question, in the investment bank the financing solutions revenue line was unusually weak.

It seems to be very stable typically, and this quarter it was down almost by half year on year.

Is there anything to point out there at all?

Thank you very much.

Thank you, Stefan.

In terms of net new money, as you observed, there was a CHF9 billion increase in cash in our wealth management business, and there are two drivers there.

One is, just in response to the risk environment, we did have some clients that moved out of investments into cash.

And what we would expect there is, over time, as the environment normalizes, we would expect to see those clients move back into investments and out of cash.

So we would see that as a natural reallocation of assets that responds to the environment and risk appetite.

Now in addition to that, there was also some cash inflow related to our net new money.

And typically, what happens is the inflows come with a fairly high concentration in cash.

Normally it can be up to 50% and what we typically see is that it takes about three to six months before that cash is put to work as we go through our assessment of our client's wealth management objectives.

We run through the planning process, their risk appetite, etc., and we come up with a appropriate plan to invest their money.

Then we see, over time, actually that that cash gets put to work [when] we see it diminish, and we would expect to see that over the next couple of quarters.

In terms of your CET1 question, the difference between the CHF800 million in that foreign currency translation impact that you saw on our shareholders equity and what you actually see in our CET1 is just the fact that our shareholders equity, of course, has much higher level of overall balances, roughly CHF54 billion versus CHF29.9 billion.

Therefore, they have higher exposure naturally to foreign currency positions, so therefore, the losses from the Swiss franc appreciation were more pronounced in our shareholders equity than they were in our CET1.

In terms of the treasury movement, there typically, particularly when we go in, we hedge and we pay out, out of our hedges for our treasury stock, that movement is reflected in shareholder retained earnings and it doesn't flow fully through to CET1.

Your final question on the investment bank and financing solutions, you're absolutely right, we actually saw a very weak quarter for financing solutions.

There, we just saw a lot lower corporate derivative activities, and we also saw a compression of margins, just given the environment.

So it really was related to the very challenging environment that we're seeing.

Maybe, Kirt, let me add on this last point because I think that, when we look at the year-on-year comparison, we have to go back into [footprints] we have and clearly, the first half of last year was highly skewed towards APAC.

And also, structurally speaking, in the last couple of quarters, we saw more activity in the US where, on a relative basis, we are not as strong as we are in the rest of the world.

So that's the first one.

The second one I could add is also the kind of business model we have is a balance sheet light, also in financing and, therefore, you are losing the recurring NII contribution of having those portfolio.

And, in addition to that, if you look at credit losses, in comparison, in the two business models, you see a fairly moderate credit loss environment for us in CCS and financing, because we are balance sheet light, compared to people that maybe have a bigger business and a more robust top-line dynamics.

But on the other hand, when you look and loan loss provisions, they see the negative effect.

So I guess it doesn't take away what Kirt said, because they are clearly weaker numbers, but there are some reconciliation that you can bring them back into a more normalized comparison.

Great.

Thank you very much.

Amit Goel, Exane.

Most of my questions have been answered, but one other question which I guess is more of a H2 point.

But just on the deferred tax assets, is it still right to assume CHF500 million benefit for this year?

Or just looking at the Americas profitability, I guess it's down a little bit year on year plus, there's the UK DTA effect.

Should we be expecting a slightly lower number for the full year?

Thank you.

As we've consistently communicated on, our DTA just firstly to re-highlight, that as we increase the number of years that we recognize our internal thresholds become more challenging, and as we highlighted, therefore, we certainly didn't expect an additional year of realization during 2016.

Also, as we highlighted, we review our DTA every year as part of our three-year planning process, and based on last year's three-year plan, we indicated that we would expect CHF500 million of additional recognition to take place this year.

And that continues to be our expectation, of course, until we go through our three-year planning exercise.

As you did mention, there is right now a potential for the UK to reduce the percentage of profits that are available for DTA offset from 50% to 25%, as we've highlighted in our earnings report.

That could result in a [CHF115 million] impairment of our UK DTA.

We'll have to wait to see if that rule comes into effect.

If it does, certainly, then you actually would see that as a potential offset to the CHF500 million.

Okay.

Thank you.

Andrew Lim, Societe Generale.

I just wanted a bit more clarity on the dividend, please, particularly your commitment to making it progressive.

It seems a bit vague, and I'm just wanting to know at what point would it not be progressive.

Do you take into account the leverage ratio?

Or is it more the case that the stress CET1 ratio might fall below 10%?

Or do you think about the payout ratio; as the EPS may be coming under pressure, the payout ratio maybe reaches an unacceptable level?

So I just wanted a bit more, say, quantitative elements to how you think about that.

And then, secondly, in wealth management Americas on slide 7, you show a healthy increase in the NII due to the US rate increase.

And I just wanted to know whether there was any follow through in that effect into the second quarter, or was that a one quarter benefit there?

Thank you.

Thank you, Andrew.

I guess the clarity you need is you want to know how much we're going to pay this year and, at the end of the first quarter, it's impossible to assess that number.

I think that we have been quite clear in our policy.

I don't think it's vague; it's quite clearly articulated.

We say that we're going to pay at least 50% of net profit attributable to shareholders.

We say that our intention is to have a progressive baseline dividend, over time.

Of course, at the end of the first quarter it's very difficult to assess how much we're going to pay during the year.

But also, in respect of capital build-up being on leverage ratio constraints or any other constraints, we also say that we're going to use the appropriate time to build up those capital targets.

Of course, our priority in this environment is, for sure, to protect our baseline dividend, and our aim, still as we speak, is to implement our progressive dividend policy.

But we need to see how market conditions change, and it's very difficult to give more clarity than what I just mentioned.

I think that we've got to retain capital only in order to be able to invest for growth and to fulfill our capital requirements, over time.

The rest is available for shareholders, and the policy is clear.

Yes, Andrew, just in terms of your question on net interest income, the impact that you're seeing flow through during the first quarter is reflective of the action that the Fed already took, the move that they've already made.

I think any further improvement will depend on future moves by the Fed which, of course, are more in question than they were when we initially developed our plan last year.

That's great.

Thanks, Sergio and Kirt.

Jeremy Sigee, Barclays.

Just a couple of quick follow-on questions on the flows, please, which were very strong, obviously, in Europe and Asia.

I just wondered, on the Asia flows, could you characterize those flows, perhaps, in terms of wealth creation flows versus flight to safety flows.

And maybe talking about which sort of assets they're coming into, whether it's mandates, risk assets, balanced or cash heavy.

And then in Europe, could you talk about which bit of Europe, or what the driver was behind that surprisingly strong number?

Yes, Jeremy.

In terms of Asia Pacific, as you can probably reconcile, we also reported very strong ultra high net worth flows.

And Asia Pacific, actually, is a region where we have high concentrations in ultra high net worth so logically, a large portion of those inflows were from ultra high net worth clients.

I think, just in terms of the assets and where they're invested, it's a fairly diverse portfolio of investment.

As I mentioned, initially when those flows typically come in, they tend to be more cash oriented and then, over time, they are invested as we work through strategies with our clients.

And so we'll actually see how those assets get positioned over the next couple of quarters.

From a Europe perspective, we did highlight that we had, in particular, one very large inflow, which was partially offset by an outflow.

But beyond that, we don't provide any further disclosure on which markets or where the flows come from.

And the European flows, is there any element of money that had flowed out through the regularization process coming back in?

Or is it really a different pot of money that's being attracted?

More generally, it's not related to flows that previously left the Bank.

It's more related to new flows that are coming in, both from existing clients and new clients.

It's more share of wallet than anything else.

Thank you very much.

Jernej Omahen, Goldman Sachs.

I just have one question left, and it continues on page 6. So this net new money figure, which is obviously, I guess, a huge number in any respect, the CHF15.5 billion.

Sergio, you made a comment frequently over the past weeks that UBS is very selective when it takes on new client business and very price sensitive.

Can I ask a question, what could this number have been had you dropped your price sensitivity here?

And secondly, I guess, the implication of saying UBS is price sensitive is the less attractive business is going somewhere else.

Can I ask you, do you think that you've lost, or do you think UBS, rather, has given up share to other private banks in order to stay price disciplined?

And finally, and I'm not expecting you to be company-specific here, but just generalizing, who do you think is taking up the net new money in the sector that UBS is turning away?

Thank you very much.

Thank you, Jernej.

Well, I would say that, again, when we look at our net new money, we are, as Kirt already mentioned before, we really look at different measures and targets that we set against those inflows.

I think it's much easier when you are talking about net new money share of wallet coming from existing clients, you know exactly how they behave, how they invest.

And then you can put a probability of your assumptions being correct at a much higher level than, for example, if you have an acquisition of a new client that brings only cash, which, whatever due diligence you need to do, you are going to have probably a different visibility about how this money will translate into assets.

So depending on those elements, we have a set of matrixes that we use and we believe have been proving to be quite important and indicative of future patterns.

I think that, because we do that, our aim is to reduce the probability of not taking on board money that we think could have been profitable.

So if we make a decision, like we did in Q2 and Q3, and partially also in Q4, to exit money or to invite clients to look for other alternatives, we basically have a good indication of what is going to happen.

So it's difficult to say that we think we lost money somewhere else that would have been accretive to us.

I hope it's not the case, and the probability is very low.

Maybe some other people do benefit from that; it's difficult for me to comment.

I will not comment on that; it's not our task to comment on competitors' dynamics.

But we do believe that keeping that discipline creates also a clarity of interaction with our clients about what we are aiming, and what they aim for from us, and we're going to continue to do that in the future.

Okay.

Thanks a lot.

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